Between 2006 and 2020, the world is expected to reach a peak in oil production where world demand for oil resources will be greater than the world's available oil supplies. Learn about oil and natural gas depletion and what that means for the global economy and our way of life in the United States.

Friday, December 30, 2005

Oil Prices Seen 40 Percent Higher for '05

By BRAD FOSS, AP Business Writer

Many analysts believe the average price of oil will be below $60 in 2006, though not by much as U.S. and Chinese economic growth continues and hawkish members of OPEC, such as Venezuela and Iran, express growing interest in a production cut as early as the first quarter.

"Because of China, oil is never going to go to the $18 to $22 level again in our lifetime," said Mike Fitzpatrick, a broker at Fimat USA in New York. "But it certainly doesn't have to be $60."

Fitzpatrick believes average oil prices will be closer to $50 a barrel in 2006, an outlook predicated on a slowdown in economic growth in the second half of the year — because of high energy prices. "At some point, this has to have a deleterious economic effect," said Fitzpatrick, whose price outlook is more bearish than many of his peers.

One thing that all oil analysts agree on is that the world's largest petroleum producers are pumping almost as much as they can, with little excess production capacity available in the event of a prolonged supply disruption. The mere threat of lost output, whether because of geopolitical strife or a natural diaster, will be enough to keep the market on edge in 2006.

"It won't take much to up the price again next year," said London-based oil analyst John Hall of John Hall Associates.

"My guess is that OPEC is quote committed to holding up the price" at present levels, Hall said.

Hall also focused on Iraq, Iran and Nigeria as potential problem countries, saying output snags and increasing political tensions could drive prices upward.

We're in a post-Christmas lull, but "things will start to warm up when OPEC ministers start talking about what to do," ahead of their January meeting, Hall said. Even now, "they're all saying the same thing — 'we're going to cut.'"